A section-by-section breakdown of TDS under the Income Tax Act, 1961 — rates, thresholds, real-world examples, due dates, and penalties.
Introduction — TDS & TCS
TDS (Tax Deducted at Source) is tax deducted at the time a payment is made, while TCS (Tax Collected at Source) is tax collected by the seller at the time of sale. Both are governed by the Income Tax Act, 1961, and serve three key objectives:
- Ensure steady revenue for the government
- Prevent tax evasion
- Widen the tax base
Why TDS Matters Right Now
TDS compliance has become an increasingly high-focus area for a few reasons:
- It ensures advance tax collection and reduces the risk of default
- It receives close attention during scrutiny and assessments
- Compliance is increasingly tracked through AIS/Form 26AS integration and e-filing automation
- Non-compliance now attracts heavy penalties
Key TDS Sections, Rates & Thresholds
Section 192 — Salary
TDS on salary is based on slab rates (under the old or new regime), and the employer is responsible for deduction. Employers must factor in deductions like 80C, 80D, HRA, and LTA, with monthly TDS adjustments allowed.
Example: ABC Pvt Ltd pays Ms. Riya an annual salary of ₹12,00,000, with ₹1,50,000 invested under Section 80C. The employer computes her taxable income, applies the slab rate, and deducts TDS monthly. If the employer fails to account for eligible deductions, any excess TDS is refunded to the employee later.
Section 194J — Professional & Technical Fees
Applies to fees for professional services, technical services, and director fees.
- Rate: 10% for professional services; 2% for technical services (where applicable)
- Threshold: ₹30,000 per year
Example: A company hires a CA firm for audit work at a fee of ₹80,000. Since this crosses the ₹30,000 threshold, TDS @10% (₹8,000) is deducted, leaving a net payment of ₹72,000. A common practical issue: clients often forget to deduct TDS on reimbursement-inclusive bills.
Section 194C — Contractors
Applies to payments to contractors and sub-contractors.
- Rate: 1% for individuals/HUF; 2% for others
- Threshold: ₹30,000 for a single payment, or ₹1,00,000 in aggregate
Example: XYZ Ltd awards an office renovation contract worth ₹5,00,000 to an individual contractor. TDS @1% amounts to ₹5,000. If multiple small bills together exceed ₹1,00,000, TDS still applies — splitting contracts to avoid TDS is a common (and incorrect) practice to avoid.
Section 194-I — Rent
- Rate: 2% for plant & machinery; 10% for land, building, or furniture
- Threshold: ₹2,40,000 per year (₹50,000 per month)
Example: A company pays office rent of ₹50,000/month (₹6,00,000/year). TDS @10% amounts to ₹60,000, deducted monthly.
Section 194D — Insurance Commission
- Rate: 5% (current rate in force)
- Threshold: ₹20,000
Example: An insurance company pays an agent a commission of ₹25,000. TDS @5% = ₹1,250, so the net payment is ₹23,750.
Section 194H — Commission/Brokerage
- Rate: 2%
- Threshold: ₹20,000
Example: A company pays ₹40,000 in sales commission. TDS @2% = ₹800.
Section 194-IA — Sale of Immovable Property
- Rate: 1%
- Applicable: When the property value exceeds ₹50 lakh
Example: Mr. A buys a property worth ₹70 lakh. TDS @1% = ₹70,000, deducted by the buyer and reported via Form 26QB.
Section 194LA — Compulsory Acquisition
- Rate: 10%
- Threshold: ₹5 lakh
Example: The government acquires land and pays ₹10 lakh in compensation. TDS @10% = ₹1,00,000.
Section 193 — Interest on Securities
- Rate: 10% (current rate in force)
- Threshold: ₹10,000
Example: A company pays ₹1,00,000 in debenture interest. TDS @10% = ₹10,000.
Section 194A — Bank Interest
- Rate: 10% (current rate in force)
- Threshold: ₹50,000 for normal depositors; ₹1,00,000 for senior citizens
Example: A bank pays ₹60,000 in FD interest. TDS @10% = ₹6,000. If PAN isn’t provided, a higher TDS rate applies.
Section 194 — Dividend
- Rate: 10%
- Threshold: Nil
Example: A company pays a ₹20,000 dividend. TDS @10% = ₹2,000.
Sections 194K / 194LBA / 194LBB — Mutual Fund & Trust Income
- Rate: 10%
- Covers: Mutual funds (threshold ₹10,000), business trusts (Nil), investment funds (Nil)
Example: An investor receives ₹15,000 in income. TDS @10% = ₹1,500.
Section 194LBC — Securitisation Trust
- Rate: 10%
- Threshold: Nil
Example: A trust distributes ₹1,00,000 to an individual. TDS @10% = ₹10,000.
Section 194DA — Life Insurance Payout
- Rate: 2% (on the income portion)
- Threshold: ₹1,00,000
Example: A policy payout has a taxable income portion of ₹2,00,000. TDS @2% = ₹4,000.
Section 194Q — Purchase of Goods above ₹50 Lakh
- Rate: 0.1%
Example: A company purchases goods worth ₹60 lakh. TDS applies on the ₹10 lakh excess over the threshold, @0.1% = ₹1,000.
Section 194R — Benefit/Perquisite
- Rate: 10%
- Threshold: ₹20,000
Example: A company gives a dealer a gift worth ₹50,000. TDS @10% = ₹5,000 — note that even non-cash benefits are covered under this section.
Section 194O — E-commerce
- Rate: 0.1%
- Threshold: Nil
Example: Amazon pays a seller ₹2,00,000 for sales. TDS @0.1% = ₹200.
Section 194S — Virtual Digital Assets (Crypto)
- Rate: 1%
- Threshold: Nil
- Applicable on cryptocurrency transactions
Example: A person sells crypto worth ₹1,00,000. TDS @1% = ₹1,000.
Summary Table: TDS Sections at a Glance
| Section | Nature | Rate | Threshold | Example |
|---|---|---|---|---|
| 192 | Salary | Slab rate | Basic exemption | Salary ₹12L → TDS as per slab, monthly |
| 194C | Contractor | 1% / 2% | ₹30K / ₹1L | Contract ₹5L → TDS ₹5,000 |
| 194J | Professional | 10% / 2% | ₹30K | Fees ₹80K → TDS ₹8,000 |
| 194-I | Rent | 2% / 10% | ₹2.4L | Rent ₹6L → TDS ₹60,000 |
| 194H | Commission | 2% | ₹20K | Commission ₹40K → ₹800 |
| 194D | Insurance | 5% | ₹20K | ₹25K → ₹1,250 |
| 194A | Interest | 10% | ₹1L / ₹50K | ₹60K → ₹6,000 |
| 194 | Dividend | 10% | Nil | ₹20K → ₹2,000 |
| 194-IA | Property | 1% | ₹50L | ₹70L → ₹70,000 |
| 194Q | Purchase | 0.1% | ₹50L | ₹60L → ₹1,000 |
| 194R | Benefit | 10% | ₹20K | Gift ₹50K → ₹5,000 |
| 194O | E-commerce | 0.1% | Nil | ₹2L → ₹200 |
| 194S | Crypto | 1% | Nil | ₹1L → ₹1,000 |
Due Dates to Remember
TDS Payment:
- Monthly: by the 7th of the following month
- For March: by 30th April
TDS Returns (Form 24Q / 26Q):
- Q1: 31 July
- Q2: 31 October
- Q3: 31 January
- Q4: 31 May
TDS Certificates:
- Form 16 (annual salary TDS certificate): by 15 June
- Form 16A (quarterly certificate for non-salary payments): within 15 days of return filing
Late Fees, Penalties & Interest
| Default | Section | Rate/Amount | Example |
|---|---|---|---|
| Late filing of return | 234E | ₹200/day | 10 days delay → ₹2,000 |
| Penalty for non-filing | 271H | ₹10,000 – ₹1,00,000 | — |
| Non-deduction of TDS | 201 | 1% interest | ₹10K TDS → ₹200 interest |
| Late payment of TDS | 201 | 1.5% interest per month | ₹10K TDS → ₹300 interest |
Example: If TDS is deducted but paid late by 2 months, interest accrues at 1.5% per month — totalling 3% for the delay.
Recent Amendments to Watch
- Increased reporting through AIS (Annual Information Statement)
- New TDS provisions on cryptocurrency (Section 194S) and benefits/perquisites (Section 194R)
- Stricter compliance monitoring by tax authorities
- Growing emphasis on automation and reconciliation of TDS data
Key Takeaways
- TDS applies across a wide range of payments — salary, professional fees, contractor payments, rent, commission, interest, dividends, property sales, crypto, and more — each with its own rate and threshold.
- Common practical mistakes include forgetting TDS on reimbursement-inclusive bills and splitting contracts to avoid crossing thresholds — both can lead to compliance issues.
- Monthly TDS payments are due by the 7th of the following month (30th April for March), while quarterly returns follow a fixed calendar (31 July, 31 October, 31 January, 31 May).
- Non-compliance is costly — late filing attracts ₹200/day under Section 234E, plus penalties up to ₹1,00,000 under Section 271H, and interest for non-deduction (1%) or late payment (1.5% per month).
- Recent amendments have expanded TDS to cover crypto transactions and non-cash benefits, alongside tighter reporting through AIS.